Friday, 20 August 2021 | Kritika Kumari | in Guest Column
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Kritika Kumari
Cryptocurrency is considered one of the best investment options which gives higher returns. Yes, much more than stock markets, mutual funds, gold, real estate, etc. But it is volatile too, which means that it behaves erratically. Before going into the nuances of it, let us first understand what it is.
Cryptocurrency is digital money which means there is no coin or bill- it is all online. One can call it virtual cash. In a natural financial system we know money through banks, brokers, central banks, etc. But in a pure crypto network there is no major issuer like a central bank, there is no bank, broker or such an agent. It is based on blockchain technology. It is a software network that has its internal currency, which can be paid across its members. So, how can we use it?
Let’s suppose if someone from India wants to send money to a friend in the USA, what one needs to do is to send the money to the central bank and it will verify that the amount is accurate before sending it forward, convert it into USD and then the recipient will get it through the bank. This process not only takes a lot of time but also charges a transaction amount from the sender.
With blockchain, this verification time can be brought down to mere seconds- there is no need for conversion, and hence, nothing will be charged. This was the main advantage of cryptocurrency but people also use it to store and grow money as it gives about 100-250 per cent returns. At the same time, it is highly volatile. In comparison, at its peak in 2017, the value of a single Bitcoin was $19,783.06 or nearly Rs 15 lakh! Even today, Bitcoin trades at around Rs 7.6 lakh per unit. So, one needs to be careful about what one is investing in. No one can predict the future, and we do not know if this is the future of finance.
Are bitcoin and cryptocurrency the same? Well, bitcoin was the original form of cryptocurrency. Over the years, 6,000 variants of bitcoin have been created. Other famous forms of cryptocurrencies are litecoin, binance coin, etc. Some cryptocurrencies like DogeCoin were designed as a joke that are now worth over $2 billion due to a market buying insanity. So, should we invest all our money in cryptocurrency? The answer would be a plain no- we should invest only the money we are willing to lose if it all goes downhill; as I already said- cryptocurrency takes the concept of volatility a few notches higher than the stock markets.
(The author is a student at Indian Institute of Technology, Delhi. Views expressed are personal)
